By Patricia M. Angus – Originally published on WealthManagement.com February 2021

The year 2021 started with a bang, not a whimper. The pain, confusion, conflicts and challenges that families face in the United States and around the world defy description. Superlatives such as “unprecedented,” “monumental” and “historic” do little justice to describe the state of the world today. We’re in the midst of a fundamental transformation, potentially pivoting from post-WWII norms to a new social con- tract defining how the three sectors of society—government, private (for profit) enterprise and charity—will work together to meet society’s needs.¹ It would be too easy as private wealth advisors (for example, lawyers, accountants, investors) to sit back and watch developments as though binge-watching a reality show on Netflix. No, these times demand that all Trusts & Estates readers, and our clients, ask ourselves about the future that we’re in the process of creating. What’s our rightful role, and what world do we want to create? These are profound, existential questions for each individual advisor and for the industry as a whole. It also highlights the vital role the family enterprises that we advise play in the economy and society. Our clients are at the center of this historic moment, and we need to counsel them with a broad lens.

Where Are We?

In early 2021, the United States exceeded 26 million COVID-19 cases and had surpassed 450,000 deaths from the deadly virus.² States were rushing to implement vaccination plans while many were extending or re-instituting lockdown measures to reduce COVID- 19’s spread. On Jan. 6, 2021, hundreds of rioters broke into the U.S. Capitol intending to block the peaceful transfer of power and kill members of the 117th U.S. Congress. By some reports, they were only minutes away from wreaking unimaginable harm on the nation’s top elected leaders. And, they were encouraged by the sitting President of the United States. Politics aside, this was an astounding reality for a nation that had long excelled in having a stable democracy. Shortly after his election, President Joe Biden quickly took steps toward reinstating governmental norms that had been under attack not just in the prior four years but over decades. Trust in government has weakened so much that, according to Pew Charitable Trust, “just 20% of U.S. adults say they trust the government in Washington to ‘do the right thing’ just about always or most of the time.”³ The media and public opinion asked whether and how “this time might be different,” but it appeared that the political logjams that had become common- place in Washington hadn’t skipped a beat. Infighting appeared to have survived the attacks and the pandemic. In a world consumed with 24/7 media, it’s difficult to perceive long-term trends in the midst of perpetual crises, but this reality is clear.

For wealth advisors, especially those who spent a good part of 2020 working day and night to help their clients create structures to use tax exemptions that might be reduced under the new administration, it’s alluring to just put it all aside, take a deep breath and get back to business as usual. But for our clients, including family enterprises, there’s no going back. Many family businesses have been shuttered due to economic pressures. Industries including hospitality, travel and retail have been hobbled. And, their owning families are reeling with the competing demands of staying in business, keeping employees on the payroll and managing with disrupted supply chains.

This is where we are today, and all three sectors in the “social contract” are needed to get us through intact. Governments around the world have stepped up with fiscal measures and benefits to support workers. Vaccines produced by the private sector are being man- aged by governmental entities. Many private businesses have contributed to support employees and their communities. Charitable organizations have been working overtime to stay in business and deliver food, health care and more to those in need. All the while, on the private wealth side, by all indications, the distance between the world’s wealthiest and the rest of society has been accelerating faster than ever. Most notably, the wealth of the world’s billionaires rose by 27.5% from April to July 2020 to total over $10 trillion.⁴ U.S. unemployment reached new highs while many employees found themselves furloughed with uncertainty about their future.⁵

The role of the family business in society and as a reflection of the shareholder/stakeholder debate is already a subject of inquiry in the classroom and among advisors to family businesses.

Advisors’ Role

The year 2020 was a boom year for trusts and estates lawyers, accountants and investment advisors. Some claim that it was an even bigger year for estate tax planning than 2012. The uncertainty of the election and the potential for increased taxes and lowered exemptions fueled a planning frenzy in which family assets such as family businesses, homes and investment accounts were transferred into trusts that would shield from taxes, protect from creditors and keep the assets in families for generations to come. For many, this is the responsibility of an advisor—especially a trusts and estates lawyer, and many fear liability or retribution for failure to raise the issue and take steps to mitigate taxes. In this sense, estate planning is primarily a quantitative exercise.

Yet, given the state of the world, it seems that the time has come to ask whether, and how, this approach to estate planning may, in the end, cause more harm than good. What’s the actual impact of all this planning? Should avoiding taxes be the primary motivation? What’s the impact on the societal view of the role of government when those with resources can much more effectively and efficiently reduce their tax hit than those with less? What about the constant rhetoric that “Uncle Sam” is the enemy? How does this impact the sense of a collective community or nation? On an individual client basis, how about “grantor’s remorse?” This term came out of the boom/bust dot.com era in which many who established and funded trusts later came to regret the fact that they had made their children far more wealthy than they were. Will we face another round of this affliction? How about the societal impact of inequality that’s exacerbated by the very planning that’s the bailiwick of the best wealth advisors? Are there moral questions that are being overlooked? For family businesses, what about the number of businesses that are now held in trust? Do the trustees have the same “skin in the game” that a family owner would have? Does the trend of carving out and rolling back trustee liability gut the fiduciary role so much that trust ownership becomes meaningless?

Who’s Thinking About This?

Most practitioners barely have time to get to the next Zoom call on time, much less think about all these lofty questions as they go about their work. But, there are many others who are already asking these questions. The role of the family business in society and as a reflection of the shareholder/stakeholder debate is already a subject of inquiry in the classroom and among advisors to family businesses.⁶ The notion of “high wealth exceptionalism,” as termed by Professor Alison Anna Tait, seems chilling when one considers how some families create their own system of quasi-legal institutions.⁷ Prof. Brooke Harrington’s work, including Capital Without Borders, raises serious questions about the role of inter- national private wealth advisors in circumventing the integrity of nations for the benefit of private individuals.⁸ And, Prof. Ray D. Madoff ’s work raising awareness about the lack of legal certainty that private foundation and donor-advised fund dollars will ever reach charitable beneficiaries identifies enormous loopholes in the Tax Code that allow the wealthiest to continue to control charitable dollars to the potential detriment of the charitable sector.⁹ Finally, Prof. Benjamin Means has addressed the question of whether family businesses help or hinder the rising inequality that threatens the future of our democracy.10 While the answer might not be a simple “yes” or “no,” the question of whether the consolidation of wealth across generations is helpful to society is at the core of the questions advisors must grapple with in the years and decades to come.

Advisors who continue business as usual, with the primary purpose being to squeeze the last dollars from the government into their clients’ pockets, may find that approach untenable.

Endnotes

1. See https://hbr.org/2020/02/what-role-should-a-family-business-play-in- its-community.
2. https://covid.cdc.gov/covid-data-tracker/#cases_totalcases.
3. www.pewresearch.org/politics/2020/09/14/americans-views-of-government-low-trust-but-some-positive-performance-ratings/.
4. www.bbc.com/news/business-54446285.
5. See www.pewresearch.org/fact-tank/2020/06/11/unemployment-rose-higher- in-three-months-of-covid-19-than-it-did-in-two-years-of-the-great-recession/.
6. Ibid. See also www.businessroundtable.org/business-roundtable-re- defines-the-purpose-of-a-corporation-to-promote-an-economy-that- serves-all-americans. The author also teaches about these issues at Columbia University Graduate School of Business.
7. www.law.ua.edu/lawreview/files/2020/06/2-Tait-981-1037.pdf. See also www.wealthmanagement.com/estate-planning/review-reviews-law-high- wealth-exceptionalism-71-ala-l-rev-forthcoming-2020.
8. Brooke Harrington, Capital Without Borders; Benjamin Means, “Wealth In- equality and Family Businesses,” Emory L.J. (2016), at pp. 937-986.
9. Ray D. Madoff, “The Five Percent Fig Leaf,” Pittsburgh Tax Review (Spring 2020), at pp. 341-356.
10. Benjamin Means, “Wealth Inequality and Family Businesses,” Emory L.J. (2016), https://ssrn.com/abstract=2600042.